Congressional Budget Offi ce

Background Paper

THE CONGRESS OF THE UNITED STATES

Utilization of Tax Incentives

for Retirement Saving:

An Update

February 2006

The Congress of the United States O Congressional Budget Office

Utilization of Tax Incentives for 

Retirement Saving: An Update

February 2006

CBO

Preface

This Congressional Budget Office background paper updates CBO’s Utilization of Tax Incentives for Retirement Saving (August 2003). That paper examined participation rates and contributions to employment-based retirement plans, individual retirement accounts (IRAs), and 

Keogh plans in 1997. This paper presents comparable figures for 2000 and shows how patterns of utilization changed between the two years. The paper also presents data that were not 

available in 1997. Roth IRAs, for example, became available in 1998. In addition, information on contributions to simplified employee pensions (SEPs) and savings incentive match 

plans for employees (SIMPLEs) became available in 2000.

Overall, the paper finds that participation in tax-favored retirement plans declined slightly 

over the study period. Increases in IRA and 401(k) participation were more than offset by 

declines in participation in noncontributory plans, such as traditional defined-benefit plans. 

In keeping with CBO’s mandate to provide objective, impartial analysis, the report makes no 

recommendations.

Paul Burnham of CBO’s Tax Analysis Division wrote the paper under the direction of

Roberton Williams and Thomas Woodward. Ed Harris provided useful comments.

Janey Cohen edited the paper, and Christine Bogusz proofread it. Denise Jordan-Williams 

assisted in preparing the initial text, and Maureen Costantino prepared the paper for publication. Lenny Skutnik produced the printed copies.

Donald B. Marron

Acting Director

February 2006

v

Contents

Summary and Introduction 1

Changes Between 1997 and 2000 1

Participation Rates 2

Contributions 4

Comparison of Roth IRAs and Traditional IRAs 8

Participation Rates 8

Contributions 9

Special Plans for Small Businesses 11

Participation Rates 12

Contributions 12
vi

Contents (Continued)

Tables

1. Workers’ Participation in Tax-Favored Retirement Plans,

1997 and 2000 3

2. Workers’ Participation in Employment-Based Retirement

Plans, 1997 and 2000 4

3. Workers’ Participation in Individual Retirement Accounts

and Keoghs, 1997 and 2000 5

4. Workers’ Contributions to 401(k)-Type Plans, 

1997 and 2000 6

5. Workers’ Contributions to Individual Retirement 

Accounts, 1997 and 2000 7

6. Workers’ Contributions to Keoghs, 1997 and 2000 10

7. Workers’ Participation in Traditional Versus 

Roth Individual Retirement Accounts, 2000 11

8. Workers’ Contributions to Traditional Versus 

Roth Individual Retirement Accounts, 2000 12

9. Workers’ Participation in Small Business Retirement

Plans, 2000 13

10. Contributions to Simplified Employee Pensions and

Savings Incentive Match Plans for Employees, 2000 14

Box

1. Phaseout Ranges for Contributions to Individual 

Retirement Accounts 9
Utilization of Tax Incentives for

Retirement Saving: An Update

Summary and Introduction

This paper updates the Congressional Budget Office’s 

(CBO’s) Utilization of Tax Incentives for Retirement Saving

(August 2003). That paper examined participation rates 

and contributions to employment-based retirement 

plans, individual retirement accounts (IRAs), and Keogh 

plans in 1997. This paper presents comparable figures for 

2000 and shows how patterns of utilization changed between the two years.

The paper also presents data that were not available in 

1997. Roth IRAs, for example, became available in 1998 

and now provide an alternative to traditional IRAs that 

most taxpayers can choose. Roth IRAs differ from traditional IRAs in that contributions are not deductible, but 

withdrawals are exempt from tax. In addition, information on contributions to simplified employee pensions 

(SEPs) and savings incentive match plans for employees 

(SIMPLEs) is now available for 2000. The 2000 data 

show, by age and income group, participation rates and 

contribution levels for all of those types of plans for all 

workers filing tax returns. 

CBO’s key findings are as follows:

B Overall participation in tax-favored retirement plans 

declined by 1 percentage point to 50 percent between 

1997 and 2000. The decline was similar across all age 

groups but did not occur among higher-income workers or two-earner married couples.

B Participation in employment-based plans declined by 

2 percentage points to 45 percent between 1997 and 

2000. That figure, however, masks differences between 401(k)-type plans and noncontributory plans.1

Participation in 401(k)-type plans increased by 1 percentage point to 28 percent, whereas participation 

only in noncontributory plans declined by 3 percentage points to 17 percent.

B Participation in IRAs increased by 2 percentage points 

to 8 percent—approximately evenly split between 

Roth IRAs and traditional IRAs—between 1997 and 

2000. The increase was greatest among the 45-to-59 

age group at 3 percentage points. Among income 

groups, the greatest increases occurred for those with 

annual adjusted gross income (AGI) between $40,000 

and $160,000.

B The average 401(k) contribution in 2000 was $3,039 

(in 1997 dollars), nearly a 10 percent increase over the 

average in 1997. The percentage of participants contributing the maximum amount also increased by 1 

percentage point to 7 percent.

B The average real IRA contribution declined between 

1997 and 2000 by $81 to $1,512. That represents 81 

percent of the maximum allowable contribution, 

slightly higher than the 1997 average of 80 percent of 

the maximum allowable contribution. Furthermore, 

the percentage contributing the maximum increased 

by 7 percentage points to 69 percent.

Changes Between 1997 and 2000

Tax and associated information returns filed with the Internal Revenue Service (IRS) provide data on who was 

covered by an employment-based retirement plan, who 

contributed to IRAs and 401(k)-type plans, and how 

much they contributed. Specifically, IRA contributions 

(whether or not they are deductible) are reported on 

Form 5498, and contributions to 401(k)-type plans are 

reported on Form W-2. The latter also identifies workers 

1. 401(k)-type plans include 401(k)s, 403(b)s, 457s, and the federal 

Thrift Savings Plan. Noncontributory plans include all definedbenefit plans and defined-contribution plans that are entirely 

employer-funded. Workers participating in both a 401(k)-type 

plan and a noncontributory plan are counted only in the former 

category.
2

who are covered by an employment-based plan but do 

not contribute toward it. Keogh contributions are reported on Form 1040. 

Participation rates in employment-based plans, IRAs, and 

Keoghs; average contributions to each; and percentages of 

participants contributing the maximum amount allowed 

by law were tabulated from samples of returns for both 

1997 and 2000 that were prepared by the IRS.2

 All dollar 

amounts are presented in 1997 dollars.

Participation Rates

Participation data were available for employment-based 

plans, individual retirement accounts, and Keogh accounts. Furthermore, information returns identified 

employment-based plan participants who contributed to 

a 401(k)-type plan. Rates are expressed as a percentage of 

all workers filing tax returns.

Overall Participation. Overall participation in taxfavored retirement plans declined by 1 percentage point 

to 50 percent between 1997 and 2000 (see Table 1). The 

decline was similar across all age groups but not among 

all income groups or groupings by marital status and 

earner role.

Workers with annual adjusted gross income over 

$120,000 participated at a higher rate in 2000 than in 

1997, reaching 80 percent participation for those earning 

between $120,000 and $160,000. In contrast, participation by those with income between $20,000 and $40,000 

dropped by 4 percentage points to 52 percent. Participation in the lowest (and largest) income group dropped 2 

percentage points to 20 percent. Among workers with income between $40,000 and $120,000, participation 

dropped by approximately 2 percentage points, but the 

levels remained well above the average.

Participation also increased among two-earner married 

couples, with the greatest increase (5 percentage points to 

59 percent) occurring among secondary earners and the 

highest level (75 percent, up 3 percentage points) occurring among primary earners. Participation by one-earner 

married couples declined 7 percentage points to 46 percent. Participation among unmarried workers (roughly 

half of all workers) also declined slightly.

Employment-Based Plans. Participation in employmentbased plans declined by 2 percentage points to 45 percent 

between 1997 and 2000. The patterns by age group, income group, and marital status/earner role mirror those 

described above for overall participation.

The patterns differ, however, when broken down between 

workers participating in a 401(k)-type plan and those 

participating only in a noncontributory plan. Participation in 401(k)-type plans increased by 1 percentage point 

to 28 percent, whereas participation only in noncontributory plans declined by 3 percentage points to 17 percent 

(see Table 2). Those differences largely reflect a continuation of the long-term trend of employers shifting from 

traditional pensions toward 401(k)-type plans.

The increase in participation in 401(k)-type plans was 

limited to those between ages 30 and 59; the youngest 

and oldest age groups experienced no change. Similarly, 

the increase was most pronounced among those with income in excess of $120,000. Among the lower-income 

groups, participation generally remained steady. Finally, 

one-earner married couples reduced their participation in 

401(k)-type plans, whereas two-earner married couples 

increased their participation by more than the average.

The decline in participation in noncontributory plans 

was similar for all age groups. By income group, the decline was sharpest among those with income below 

$80,000, but no income class experienced an increase. By 

marital status/earner role, one-earner married couples experienced the largest decline in participation, whereas 

secondary earners in two-earner married couples experienced the smallest decline.

IRAs and Keoghs. Participation in IRAs increased by 2 

percentage points to 8 percent between 1997 and 2000 

2. Because the tabulations are from a sample, some sampling error is 

inevitable. The IRS publishes coefficients of variation (CVs) for 

most of the fields that can be extracted from Form 1040. For IRA 

and Keogh contributions in 2000, the CV for those fields (both 

the number of returns and the amounts) was approximately 2 percent (see Internal Revenue Service, Statistics of Income–2000: Individual Income Tax Returns [March 2003], pp. 56-57). That means 

that there is only one chance in 20 that sampling error would 

cause the tabulated value to be more than 4 percent higher or 4 

percent lower than the true value. For a tabulated dollar amount 

of $1,000, that would translate into a range of $960 to $1,040. 

Corresponding CVs in 1997 were slightly higher but still less than 

3 percent (see Internal Revenue Service, Statistics of Income–1997: 

Individual Income Tax Returns [December 1999], pp. 58-59). CVs 

for contributions to 401(k)-type plans are not published but 

would probably be lower than those for IRAs and Keoghs. Those 

for contributions to SEPs and SIMPLEs would probably be 

higher.
3

Table 1.

Workers’ Participation in Tax-Favored Retirement Plans, 1997 and 2000

Source: Congressional Budget Office tabulations of 1997 and 2000 individual income tax returns and tax information returns.

Note: Participation consists of contributing to an individual retirement account, Keogh, or 401(k)-type plan or being enrolled in a noncontributory plan during the given year.

(see Table 3). That increase largely reflects the introduction of Roth IRAs beginning in 1998. As with

employment-based plans, however, the changes were not 

uniform among age groups, income groups, or marital 

status/earner role. 

The increase was greatest among the 45-to-59 age group 

at 3 percentage points, with smaller increases in the 

younger age groups and no change among those age 60 or 

older. Among income groups, the greatest increases occurred for those with income between $40,000 and 

$160,000, with rates reaching a high of 20 percent for the 

$120,000-$160,000 income group. There was little 

change in participation among the lower-income groups. 

Participation declined in the highest income group. By 

marital status/earner role, participation increased the 

most among secondary earners in two-earner married 

couples and least among one-earner married couples.

Keogh participation rates are generally too low to reveal 

patterns in participation by age group, marital status, or 

earner role. However, among the higher-income groups, 

1997 2000

Category

Number of Workers

(Thousands)

Percentage Actively 

Participating in

Any Plan

Number of Workers

(Thousands)

Percentage Actively

Participating in

Any Plan

By Age Cohort

Under 30 40,765 35 40,068 33

30 to 44 50,205 58 49,411 56

45 to 59 31,822 64 35,316 63

60 and Over 10,605 42 11,388 40

All Cohorts 133,397 51 136,183 50

By Adjusted Gross Income (1997 dollars)

Under $20,000 45,790 22 44,755 20

$20,000 to $40,000 32,867 56 32,706 52

$40,000 to $80,000 37,145 70 37,350 67

$80,000 to $120,000 10,812 79 12,563 78

$120,000 to $160,000 3,097 78 3,954 80

$160,000 and Over 3,686 76 4,854 77

All Income Groups 133,397 51 136,183 50

By Marital Status/Earner Role

Single Earners 64,388 41 67,635 39

Married Earners

Sole 18,955 53 19,756 46

Primary 25,028 72 24,396 75

Secondary 25,028 54 24,396 59

All Earners 133,397 51 136,183 50

Nonearning Spouse 18,955 6 19,756 7
4

Table 2.

Workers’ Participation in Employment-Based Retirement Plans, 1997 and 2000

(Percentage of all workers)

Source: Congressional Budget Office tabulations of 1997 and 2000 individual income tax returns and tax information returns.

Note: Participation consists of making a contribution to a 401(k)-type plan or being enrolled in a noncontributory plan during the given year.

n.a. = not applicable.

for whom participation exceeded 3 percent in 1997, the 

participation rate declined or stayed the same between 

1997 and 2000 (see Table 3).

Contributions

Data on employee contribution levels were available for 

401(k)-type plans, IRAs, and Keoghs. Results are presented in terms of average contributions and the percentage of participants making the maximum contribution allowed by statute. The available tax forms did not report 

employer contributions to 401(k)-type plans.

401(k)-Type Plans. The statutory limit on annual 401(k) 

contributions by employees increased with inflation between 1997 and 2000 to $10,500, but average contributions increased at a faster rate, possibly reflecting real 

wage growth.3 The average 401(k) contribution in 2000 

was $3,039, nearly a 10 percent increase over the average 

in 1997 (see Table 4). The percentage of participants 

contributing the maximum amount also increased by 1 

percentage point to 7 percent.

401(k)-Type Plans Noncontributory Plans Only

Category 1997 2000 1997 2000

By Age Cohort

Under 30 15 15 18 15

30 to 44 32 34 22 18

45 to 59 36 37 22 19

60 and Over 18 18 16 14

All Cohorts 27 28 20 17

By Adjusted Gross Income (1997 dollars)

Under $20,000 6 6 14 12

$20,000 to $40,000 27 27 25 21

$40,000 to $80,000 40 41 25 20

$80,000 to $120,000 53 52 19 17

$120,000 to $160,000 52 55 15 15

$160,000 and Over 45 49 14 14

All Income Groups 27 28 20 17

By Marital Status/Earner Role

Single Earners 19 20 19 16

Married Earners

Sole 27 26 20 14

Primary 44 48 23 20

Secondary 29 32 20 19

All Earners 27 28 20 17

Nonearning Spouse n.a. n.a. n.a. n.a.

3. In addition to the absolute dollar limit, contributions to 401(k)-

type plans in 1997 and 2000 were also limited to 25 percent of 

compensation. That limit was rarely binding. 
5

Table 3.

Workers’ Participation in Individual Retirement Accounts and Keoghs,

1997 and 2000

(Percentage of all workers)

Source: Congressional Budget Office tabulations of 1997 and 2000 individual income tax returns and tax information returns.

Note: Participation consists of making a contribution to an IRA or Keogh during the given year.

n.a. = not applicable.

Average contributions were highest in the 45-to-59 age 

group, but that group had the slowest growth in average 

contributions—less than 4 percent. In contrast, the 

under-30 group had the lowest average contributions but 

the fastest growth—more than 17 percent. The oldest 

group—60 and above—had slightly smaller average contributions than the 45-to-59 group but slightly faster 

growth. The 30-to-44 group fell in between the under-30 

group and the 45-to-59 group in both average contributions and growth in average contributions.

Average contributions represented roughly similar shares 

of income, ranging from about 5 percent of adjusted 

gross income in the lower-income groups to around 4 

percent in the higher-income groups. Furthermore, 

growth rates were highest for the lowest income group—

over 17 percent—and negative for the highest income 

group. For every group in between, the growth rate was 

less than 10 percent. The decline in the growth rate of 

average contributions as income increases may reflect the 

number of participants in each income class who contributed the maximum in 1997 and could not contribute 

IRAs Keogh Plans

Category 1997 2000 1997 2000

By Age Cohort

Under 30 3 4 <1 <1

30 to 44 6 8 1 1

45 to 59 9 12 2 2

60 and Over 10 10 1 2

All Cohorts 68 1 1

By Adjusted Gross Income (1997 dollars)

Under $20,000 2 3 <1 <1

$20,000 to $40,000 7 7 <1 <1

$40,000 to $80,000 7 10 1 1

$80,000 to $120,000 9 16 3 2

$120,000 to $160,000 14 20 5 4

$160,000 and Over 17 14 9 9

All Income Groups 68 1 1

By Marital Status/Earner Role

Single Earners 4 6 <1 <1

Married Earners

Sole 8 9 2 1

Primary 8 11 2 2

Secondary 7 11 1 1

All Earners 68 1 1

Nonearning Spouse 6 7 n.a. n.a.
6

Table 4.

Workers’ Contributions to 401(k)-Type Plans, 1997 and 2000

Source: Congressional Budget Office tabulations of 1997 and 2000 individual income tax returns and tax information returns.

Note: n.a. = not applicable.

more in real terms in 2000, thereby dampening the 

growth rate. 

The overall 10 percent growth rate—a rate exceeded only 

in the lowest income class—results from an upward shift 

in the real income distribution of the population. The average income in each class (except the highest one) was 

roughly similar in each year, but the overall average income was higher in 2000 because more people were in 

the higher groups. Thus, even if there was no change in 

average contributions in each income class, overall average contributions would increase. 

Married individuals who were either the primary or sole 

earner in the family continued to make the highest average contributions. The growth rate for those groups was 

slightly lower than average, but the difference in growth 

rates among marital status/earner role was not as great as 

among age or income groups.

1997 2000

Category

Number of

Participants

(Thousands)

Average

Contribution

(1997 dollars)

Percentage of

Participants

Contributing the

Maximum

Number of

Participants

(Thousands)

Average

Contribution

(1997 dollars)

Percentage of

Participants

Contributing the

Maximum

By Age Cohort

Under 30 6,128 1,592 2 6,102 1,873 2

30 to 44 16,288 2,691 6 16,868 2,993 7

45 to 59 11,360 3,466 9 13,164 3,590 10

60 and Over 1,889 3,213 10 2,092 3,338 10

 All Cohorts 35,666 2,772 6 38,226 3,039 7

By Adjusted Gross Income (1997 dollars)

Under $20,000 2,695 630 1 2,874 740 1

$20,000 to $40,000 8,914 1,504 1 8,881 1,595 2

$40,000 to $80,000 15,020 2,621 4 15,319 2,777 4

$80,000 to $120,000 5,739 4,148 10 6,589 4,303 11

$120,000 to $160,000 1,624 5,451 21 2,190 5,689 20

$160,000 and Over 1,673 7,015 40 2,373 6,960 38

All Income Groups 35,666 2,772 6 38,226 3,039 7

By Marital Status/Earner Role

Single Earners 12,404 2,190 3 13,591 2,448 5

Married Earners

Sole 5,147 3,580 12 5,055 3,881 12

Primary 10,973 3,398 8 11,801 3,712 9

Secondary 7,141 2,239 5 7,779 2,501 6

All Earners 35,666 2,772 6 38,226 3,039 7

Nonearning Spouse n.a. n.a. n.a. n.a. n.a. n.a.
7

Table 5.

Workers’ Contributions to Individual Retirement Accounts, 1997 and 2000

Source: Congressional Budget Office tabulations of 1997 and 2000 individual income tax returns and tax information returns.

IRAs. The $2,000 limit on IRA contributions did not 

change between 1997 and 2000.4

 In inflation-adjusted 

terms, a $2,000 nominal contribution in 2000 was the 

equivalent of an $1,866 contribution in 1997. Almost 

two-thirds of participants already contributed the maximum in 1997 and could not increase their contributions 

in 2000. When combined with the real growth in contributions among those not at the maximum, however, the 

overall average real contribution declined over that period 

by only $81 to $1,512 (see Table 5). That represents 81 

percent of the maximum allowable contribution, slightly 

higher than the 1997 average of 80 percent of the maximum allowable contribution. Furthermore, the percentage contributing the maximum increased by 7 percentage 

points to 69 percent.

Average real contributions increased slightly with age in 

2000, but the average in each group was within $150 of 

the overall average. The percentage contributing the maximum also increased with age, ranging from 57 percent in 

the under-30 group to 83 percent in the 60-and-over 

group. The biggest decline in average real contributions 

came in the 45-to-59 group, where the average fell by 

$111.

1997 2000

Category

Number of

Participants

(Thousands)

Average

Contribution

(1997 dollars)

Percentage of

Participants

Contributing the

Maximum

Number of

Participants

(Thousands)

Average

Contribution

(1997 dollars)

Percentage of

Participants

Contributing the

Maximum

By Age Cohort

Under 30 1,020 1,407 51 1,772 1,378 57

30 to 44 2,815 1,530 56 3,800 1,474 64

45 to 59 2,971 1,675 69 4,189 1,564 75

60 and Over 1,012 1,713 70 1,099 1,659 83

All Cohorts 7,818 1,593 62 10,860 1,512 69

By Adjusted Gross Income (1997 dollars)

Under $20,000 1,083 1,489 58 1,268 1,378 58

$20,000 to $40,000 2,158 1,517 56 2,376 1,409 57

$40,000 to $80,000 2,511 1,502 57 3,760 1,479 67

$80,000 to $120,000 995 1,776 71 2,015 1,638 77

$120,000 to $160,000 443 1,854 79 773 1,644 87

$160,000 and Over 628 1,918 87 668 1,778 97

All Income Groups 7,818 1,593 62 10,860 1,512 69

By Marital Status/Earner Role

Single Earners 2,833 1,549 62 3,820 1,451 67

Married Earners

Sole 1,444 1,626 62 1,684 1,571 72

Primary 1,878 1,613 62 2,673 1,546 69

Secondary 1,663 1,615 63 2,683 1,527 70

All Earners 7,818 1,593 62 10,860 1,512 69

Nonearning Spouse 1,142 1,583 62 1,466 1,559 75

4. In addition to the $2,000 limit, IRA contributions in 1997 and 

2000 were limited to the amount of compensation (except for 

nonearning spouses, in which case the combined contributions of 

the spouses were limited to the compensation of the earning 

spouse). That limit was rarely binding.
8

Average real contributions also increased with income. In 

the highest income group in 2000, 97 percent contributed the maximum, and the average contribution was 

$1,778. In the lowest income group, only 58 percent 

contributed the maximum, and the average contribution 

was $1,378. In each successively higher income group, 

the average contribution in 2000 was slightly higher than 

it was in the previous group. The percentage contributing 

the maximum in 2000 was basically unchanged from 

1997 for the lowest two income groups but increased by 

approximately 10 percentage points in each of the higherincome groups.

Average real contributions varied little by marital status/

earner role. The most notable change from 1997 was the 

13 percentage-point increase in the number of nonearning spouses contributing the maximum. Prior to 1997, 

nonearning spouses were limited to annual contributions 

of $250. The 1997 figure may reflect some ignorance of 

the increased limit (to $2,000), which would have been 

better known by 2000.

Keoghs. The $30,000 limit on Keogh contributions did 

not increase between 1997 and 2000. Average Keogh 

contributions, however, increased as a result of inflation 

and real growth in self-employment income. The overall 

average real contribution increased by nearly 4 percent

to $8,405 (see Table 6 on page 10). The percentage contributing the maximum also increased by 3 percentage 

points to 9 percent.

The growth in average contributions was uneven across 

age and income groups. That unevenness was most likely 

the result of the small sample size available for Keoghs. 

Most notable was an 11 percent decrease in average real 

contributions between 1997 and 2000 among participants ages 60 and older. By marital status/earner role, 

growth in average contributions was fairly even.

Keogh contributions are limited not only by a statutory 

dollar ceiling but also by the amount of self-employment 

income. The latter constraint seems to be the more binding. In the lowest income class, 10 percent of participants 

contributed the maximum in 2000. Because the $30,000 

statutory ceiling ($27,990 in 1997 dollars) is higher than 

the $20,000 income ceiling for that group, the binding 

constraint can only be the amount of self-employment 

income.5 In each of the next four higher income classes, 

the percentage contributing the maximum was smaller 

than or the same as in the preceding class, reflecting the 

reduced likelihood of contributing 100 percent of selfemployment income in those groups. Only for the highest group did the percentage contributing the maximum 

exceed that for the lower-income groups, reflecting participants hitting the statutory dollar ceiling.

The percentage contributing the maximum increased for 

all earner roles among married couples. Among unmarried participants, however, the percentage contributing 

the maximum remained unchanged.

Comparison of Roth IRAs and

Traditional IRAs

Roth IRAs were introduced in 1998 and therefore were 

not considered in CBO’s examination of participation in 

1997. Roth IRAs differ from traditional IRAs in that contributions are not deductible, but withdrawals are exempt 

from tax. The dollar limit on contributions ($2,000 in 

2000) applies to all IRA contributions: it can all be applied to one type or to the other, or it can be split between the two types. Allowable Roth contributions phase 

out for higher-income individuals and are zero at income 

levels above $160,000. Contributions to traditional IRAs 

are allowable regardless of income but are not deductible 

by higher-income individuals who are covered (or whose 

spouses are covered) by an employment-based plan (see 

Box 1). A $2,000 contribution to either type of IRA will 

accumulate the same value over time, but because a tax 

will be due on a withdrawal from a traditional IRA, an 

equal balance in a Roth IRA is actually worth more. 

Hence, if all else is equal, it makes sense for somebody 

with $2,000 available to deposit in an IRA to contribute 

it to a Roth IRA rather than a traditional IRA.

Participation Rates

Overall, the 8 percent participation rate in IRAs in 2000 

was split approximately evenly between Roth IRAs and 

traditional IRAs (see Table 7 on page 11). There was little 

difference between the two types by marital status/earner 

role, although one-earner married couples had a slight 

preference for traditional IRAs over Roth IRAs. The 

even split did not extend to each age and income group, 

however.

In addition to the different statutory requirements for 

participation in the two types of IRAs, the incentives to 

participate differ on the basis of factors that correlate to 

age and income. The attractiveness of an IRA depends 

5. In theory, passive losses and loss carryovers from previous years 

could render the dollar ceiling binding for some Keogh participants in income groups below $20,000, but that would be a very 

rare occurrence.
9

partly on the tax rate at the time of contribution compared with the anticipated tax rate at the time of withdrawal. If one anticipates the rate at withdrawal to be 

lower than the rate at contribution, then the traditional 

IRA is more attractive, and vice versa. Workers in their 

peak earning years are the most likely to fall into that category, which generally means that older workers should 

find traditional IRAs more attractive than Roth IRAs. In 

contrast, younger and lower-income workers should prefer Roth IRAs. 

Those expectations are supported by the data, which 

show workers under age 30 preferring Roth IRAs, workers ages 45 and older preferring traditional IRAs, and 

workers between 30 and 44 splitting evenly between the 

two. Participation in both types of IRAs increased with 

age up to age 60 (much faster for traditional IRAs). 

Above age 60, however, participation in Roth IRAs 

dropped to the lowest level of any age group (2 percent), 

whereas participation in traditional IRAs remained at the 

same level as the next youngest age group (7 percent). 

Those patterns could also reflect inertia among older 

workers in either of two respects: those who had already 

established traditional IRAs sticking with them rather 

than switching to Roths, and those who had not established traditional IRAs being less attracted to Roth IRAs 

than were younger workers without traditional IRAs.

One might think that higher-income workers would also 

prefer traditional IRAs, since their tax rate is unlikely to 

be higher when the funds are withdrawn. Their preferences notwithstanding, however, their access to the benefits of traditional IRAs was frequently constrained by the 

income thresholds that limit deductibility of contributions. Therefore, the picture that emerges from the data is 

unclear. Workers with income in excess of $160,000 used 

only traditional IRAs (at a rate of 14 percent), but that 

was because of statutory limits on Roth participation. At 

income levels between $80,000 and $160,000—above 

the income thresholds for those covered by employmentbased plans—Roth IRAs were distinctly preferred (by as 

much as 4 percentage points), reaching a high of 11 percent at income levels between $120,000 and $160,000. 

At income levels below $80,000, there was little difference in participation between the two types of IRAs.

Contributions

Average contributions to Roth IRAs exceeded those to 

traditional IRAs by $39, a difference of less than 3 percent (see Table 8 on page 12). The percentage contributing the maximum, in contrast, was lower for Roth participants than for traditional participants.

Box 1.

Phaseout Ranges for Contributions to Individual Retirement Accounts 

Allowable Roth IRA contributions phased out between the following income levels in 2000:

Unmarried taxpayers $95,000-$110,000

Married taxpayers filing joint returns $150,000-$160,000

Married taxpayers filing separate returns Zero-$10,000

For taxpayers who were covered (or whose spouses were covered) by an employment-based plan, the deductibility of contributions to traditional IRAs phased out between the following income levels in 1997 and 2000:

1997 2000

Unmarried taxpayers $25,000-$35,000 $32,000-$42,000

Married taxpayers filing joint returns

Spouse covered by an employment-based plan $40,000-$50,000 $52,000-$62,000

Spouse not covered by an employment-based plan $40,000-$50,000 $150,000-$160,000

Married taxpayers filing separate returns Zero-$10,000 Zero-$10,000
10

Table 6.

Workers’ Contributions to Keoghs, 1997 and 2000

Source: Congressional Budget Office tabulations of 1997 and 2000 individual income tax returns and tax information returns.

Note: n.a. = not applicable.

One reason that the average contribution to a Roth IRA 

was higher than the average contribution to a traditional 

IRA even though a higher percentage of traditional IRA 

participants contributed the maximum is because of the 

income restrictions on Roth participation. Of traditional 

IRA participants in the $160,000-and-above income 

group, 97 percent contributed the maximum. At that income level, however, Roth contributions are prohibited. 

The absence of that group in the overall Roth figures 

pulls the percentage down from what it otherwise would 

be. Nevertheless, corresponding percentages were lower 

for Roth participants than for traditional participants in 

every income class except the lowest.

Among age groups, the difference between average contributions to Roth and traditional IRAs was most pronounced in the under-30 group—Roth contributions 

were 21 percent higher. Average Roth contributions were 

approximately 6 percent higher than those to traditional 

IRAs in the middle two groups. In the oldest group, average contributions to Roth IRAs were 6 percent lower 

than those to traditional IRAs.

Among income groups, the difference between average 

contributions to Roth and traditional IRAs was most pronounced between $40,000 and $120,000. In the lowerincome groups, average contributions to traditional IRAs 

were slightly higher than those to Roth IRAs, but the dif1997 2000

Category

Number of

Participants

(Thousands)

Average

Contribution

(1997 dollars)

Percentage of

Participants

Contributing the

Maximum

Number of

Participants

(Thousands)

Average

Contribution

(1997 dollars)

Percentage of

Participants

Contributing the

Maximum

By Age Cohort

Under 30 24 4,675 1 28 5,137 3

30 to 44 469 8,050 5 476 7,909 7

45 to 59 546 8,211 7 657 9,093 11

60 and Over 121 8,612 9 172 7,675 8

All Cohorts 1,159 8,115 6 1,332 8,405 9

By Adjusted Gross Income (1997 dollars)

Under $20,000 42 2,245 6 46 2,132 10

$20,000 to $40,000 104 2,665 6 116 3,088 6

$40,000 to $80,000 286 4,098 3 336 4,480 6

$80,000 to $120,000 242 6,360 3 275 6,127 4

$120,000 to $160,000 145 9,433 3 145 8,977 3

$160,000 and Over 340 14,578 12 415 15,067 17

All Income Groups 1,159 8,115 6 1,332 8,405 9

By Marital Status/Earner Role

Single Earners 223 7,290 5 273 7,465 5

Married Earners

Sole 290 11,311 9 296 12,189 13

Primary 377 9,812 6 443 10,054 9

Secondary 268 2,960 4 320 3,409 8

All Earners 1,159 8,115 6 1,332 8,405 9

Nonearning Spouse n.a. n.a. n.a. n.a. n.a. n.a.
11

Table 7.

Workers’ Participation in Traditional Versus 

Roth Individual Retirement Accounts, 2000

Source: Congressional Budget Office tabulations of individual income tax returns and tax information returns for 2000.

Note: Participation consists of making a contribution to a traditional IRA or a Roth IRA during the given year.

ference was only $10 or less. In the $120,000-to-

$160,000 group, average Roth contributions were larger, 

but only by $14. Between $40,000 and $80,000 of AGI, 

however, average Roth contributions were $136 higher, 

and between $80,000 and $120,000 of AGI, they were 

$83 higher.

Average Roth contributions were higher than those to traditional IRAs for every marital status/earner role, including nonearning spouse. The smallest difference ($8) was 

among married workers who are the sole earner in the 

family. Likewise, the percentage contributing the maximum to a Roth IRA was smaller than the percentage contributing the maximum to a traditional IRA for every 

marital status/earner role except nonearning spouses, for 

whom the percentages were equal.

Special Plans for Small Businesses

Two types of special plans for small businesses can be 

identified in the data for 2000 that were not broken out 

in the 1997 data: simplified employee pensions and savings incentive match plans for employees. Some SEPs are 

reported as Keoghs, leaving a residual amount of Keoghs 

that are also associated primarily with small businesses.

Category

Number of

Workers

(Thousands)

Percentage

Participating in

Either Type

Percentage

Participating in

Traditional IRAs

Percentage

Participating in

Roth IRAs

By Age Cohort

Under 30 40,068 4 1 3

30 to 44 49,411 8 4 4

45 to 59 35,316 12 7 5

60 and Over 11,388 10 7 2

All Cohorts 136,183 8 4 4

By Adjusted Gross Income (1997 dollars)

Under $20,000 42,057 3 1 2

$20,000 to $40,000 31,553 7 4 3

$40,000 to $80,000 38,040 10 5 5

$80,000 to $120,000 14,258 16 6 10

$120,000 to $160,000 4,740 20 9 11

$160,000 and Over 5,536 14 14 0

All Income Groups 136,183 8 4 4

By Marital Status/Earner Role

Single Earners 67,635 6 3 3

Married Earners

Sole 19,756 9 5 3

Primary 24,396 11 6 6

Secondary 24,396 11 6 5

All Earners 136,183 8 4 4

Nonearning Spouse 19,756 7 5 3
12

Table 8.

Workers’ Contributions to Traditional Versus 

Roth Individual Retirement Accounts, 2000

Source: Congressional Budget Office tabulations of individual income tax returns and tax information returns for 2000.

Note: n.a. = not applicable.

Participation Rates

Approximately 3 percent of workers in 2000 participated 

in a small business retirement plan (see Table 9). A plurality of those participated in SEPs, but the differences in 

participation rates between the two special types of plans 

(and between them and the residual Keoghs) was not 

large. Among age groups, participation was lowest for 

those below age 30 (1 percent) and highest for those between 45 and 59 (4 percent). In all but the youngest age 

group, SEP participants outnumbered SIMPLE participants. That may reflect the fact that SEPs have existed 

since 1979, whereas SIMPLEs were first allowed in 1997. 

SEPs have therefore had time to age along with the workforces they cover. 

Participation increased with income from 1 percent in 

the lowest income group to 14 percent in the highest. 

Two-earner married couples (both primary and secondary 

earners) participated at above-average rates (5 percent and 

4 percent, respectively), and unmarried workers participated at below-average rates (1 percent).

Contributions

SEP contributions are made by employers to an IRA-type 

account. In 2000, average contributions to SEPs were 

Traditional IRAs Roth IRAs

Category

Number of

Participants

(Thousands)

Average

Contribution

(1997 dollars)

Percentage of

Participants

Contributing the

Maximum

Number of

Participants

(Thousands)

Average

Contribution

(1997 dollars)

Percentage of

Participants

Contributing the

Maximum

By Age Cohort

Under 30 487 1,146 51 1,358 1,387 56

30 to 44 1,809 1,370 65 2,139 1,460 58

45 to 59 2,613 1,481 73 1,714 1,565 70

60 and Over 848 1,636 81 282 1,549 82

All Cohorts 5,757 1,440 70 5,493 1,479 62

By Adjusted Gross Income (1997 dollars)

Under $20,000 627 1,333 54 687 1,326 57

$20,000 to $40,000 1,412 1,355 57 1,067 1,345 50

$40,000 to $80,000 1,917 1,354 69 1,991 1,490 59

$80,000 to $120,000 772 1,539 77 1,303 1,622 73

$120,000 to $160,000 363 1,579 85 439 1,593 83

$160,000 and Over 666 1,783 97 5 n.a. n.a.

All Income Groups 5,757 1,440 70 5,493 1,479 62

By Marital Status/Earner Role

Single Earners 1,819 1,364 67 2,162 1,416 61

Married Earners

Sole 1,074 1,512 70 672 1,520 69

Primary 1,392 1,480 72 1,361 1,524 61

Secondary 1,473 1,445 71 1,298 1,517 62

All Earners 5,757 1,440 70 5,493 1,479 62

Nonearning Spouse 983 1,486 72 532 1,552 72
13

Table 9.

Workers’ Participation in Small Business Retirement Plans, 2000

Source: Congressional Budget Office tabulations of individual income tax returns and tax information returns for 2000.

Notes: Participation consists of making a contribution to a small business plan during 2000.

SEP = simplified employee pension; SIMPLE = savings incentive match plan for employees; n.a. = not applicable.

a. Includes SEPs, SIMPLEs, and non-SEP Keoghs.

$4,755 (see Table 10). They were highest among the 45-

to-59 age group and lowest among the under-30 group. 

The percentage of participants receiving the maximum 

statutory amount increased with age, averaging 21 percent overall.6

 Average contributions increased with income, ranging from $1,088 in the lowest class to $9,913 

in the highest class. The percentage receiving the maximum allowable contribution, however, showed no discernible pattern by income group. By marital status/

earner role, average SEP contributions were highest 

among married workers who were either the primary or 

sole earners in the family. Secondary earners had the lowest average contributions.

Category

Number of

Workers

(Thousands)

Percentage

Participating in

Either Typea

Percentage

Participating in

SEPs

Percentage

Participating in

SIMPLEs

By Age Cohort

Under 30 40,068 1 <1 1

30 to 44 49,411 3 1 1

45 to 59 35,316 4 2 1

60 and Over 11,388 31 1

All Cohorts 136,183 3 1 1

By Adjusted Gross Income (1997 dollars)

Under $20,000 42,057 1 <1 <1

$20,000 to $40,000 31,553 2 1 1

$40,000 to $80,000 38,040 3 1 1

$80,000 to $120,000 14,258 5 3 1

$120,000 to $160,000 4,740 7 4 2

$160,000 and Over 5,536 14 6 3

All Income Groups 136,183 3 1 1

By Marital Status/Earner Role

Single Earners 67,635 1 1 1

Married Earners

Sole 19,756 3 1 1

Primary 24,396 5 2 2

Secondary 24,396 42 1

All Earners 136,183 3 1 1

Nonearning Spouse 19,756 n.a. n.a. n.a.

6. The maximum allowable SEP contribution in 2000 was the lesser 

of $30,000 or 15 percent of compensation. However, the maximum amount of compensation that could be considered was 

$170,000, making the effective limit 15 percent of that amount, 

or $25,500 ($23,792 in 1997 dollars). The percentage-ofcompensation limit explains the relatively high percentages of 

participants at the limit in the lower-income groups.
14

Table 10.

Contributions to Simplified Employee Pensions and Savings Incentive Match 

Plans for Employees, 2000

Source: Congressional Budget Office tabulations of individual income tax returns and tax information returns for 2000.

Note: n.a. = not applicable.

SIMPLE contributions are made by both employees and 

employers. In 2000, average combined contributions to 

SIMPLEs were $2,804. They were highest among the 45-

to-59 age group and lowest among the under-30 group. 

The percentage of participants with employee contributions at the maximum statutory amount of $6,000 

($5,598 in 1997 dollars) increased with age, averaging

7 percent overall.7

 Average contributions increased with 

income, ranging from $1,089 in the lowest class to 

$6,099 (including employer contributions) in the highest 

class. By marital status/earner role, average SIMPLE contributions were highest among married workers who were 

either the primary or sole earners in the family. Unmarried workers had the lowest average contributions. 

SEPs SIMPLEs

Category

Number of

Participants

(Thousands)

Average

Employer

Contribution

(1997 dollars)

Percentage of

Participants

Receiving the

Maximum

Contribution

Number of

Participants

(Thousands)

Average

Participant Plus

Employer

Contribution

(1997 dollars)

Percentage of

Participants

Contributing the

Maximum

By Age Cohort

Under 30 141 2,330 7 268 1,493 2

30 to 44 670 4,858 17 569 2,789 5

45 to 59 704 5,287 26 429 3,548 10

60 and Over 156 4,101 32 75 3,343 16

All Cohorts 1,670 4,755 21 1,341 2,804 7

By Adjusted Gross Income (1997 dollars)

Under $20,000 108 1,088 27 142 1,089 6

$20,000 to $40,000 233 2,155 23 345 1,527 2

$40,000 to $80,000 507 3,074 17 484 2,558 3

$80,000 to $120,000 357 4,390 20 165 4,145 11

$120,000 to $160,000 153 7,191 26 76 4,876 16

$160,000 and Over 313 9,913 22 129 6,099 25

All Income Groups 1,670 4,755 21 1,341 2,804 7

By Marital Status/Earner Role

Single Earners 418 3,946 22 444 2,012 4

Married Earners

Sole 277 6,961 17 145 3,838 11

Primary 524 6,097 19 415 3,706 4

Secondary 451 2,596 26 337 2,290 13

All Earners 1,670 4,755 21 1,341 2,804 7

Nonearning Spouse n.a. n.a. n.a. n.a. n.a. n.a.

7. SIMPLEs have no percentage-of-compensation limit on employee 

contributions. Therefore, fewer SIMPLE participants than SEP 

participants are constrained by a limit in the lower-income 

groups.